From the Securities Lending Trading Desk

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Short interest for Twitter Inc. has risen as the company has become desperate in attempts to boost its active user base. Three of Japan’s largest shipping firms announced that they would spin off their liner businesses to form a joint venture sending shockwaves through the industry. There has been a spur in demand for UBI Banca following a rights issuance and MSCI speculation, and Nyrstar was highly sought after ahead of their earnings announcement at the start of the week.

Below please find the November 9 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas 

Short interest has been on the rise for Twitter Inc. (TWTR) as the company has become desperate in attempts to boost its active user base. Last week the company released weak third quarter results and said that it would eliminate 9% of its workforce in an effort to cut costs and inch closer to profitability. With Salesforce, Google, Apple, and Disney all withdrawing from takeover talks last month, Twitter’s short interest has hit a year-to-date high of $1.3 billion, up 31% on the year according to one source. Borrowing costs have started to increase as new shorts continue to pile into TWTR.

Weaker-than-expected revenues and profits, combined with a lowered forecast, sent Tree, Inc. (TREE) shares plummeting to a 4-month low thus driving up directional demand. The lending and real estate company reported 36% sales growth over Q3 2015 but investors were hoping for more. Revenue came in at $94.6 million for the quarter but that fell short of analysts’ consensus estimates of $96.9 million. Furthermore, management issued new guidance for full-year 2016, calling for revenues of $370 million to $375 million, roughly 3% below previous expectations. The increase in short interest, coupled with limited liquidity in the borrowing market, have sent fee levels higher.

Asia Pacific 

Three of Japan’s largest shipping firms sent shockwaves through the industry last week with the announcement that they would spin off their liner businesses to form a joint venture. Kawasaki Kisen Kaisha (K-Line), Mitsui O.S.K. (MOL) and Nippon Yusen (NYK) agreed to join forces to create the world’s sixth-largest liner in terms of capacity with about 7% of the global market share. The tie-up is in response to the liner industry facing sustained pressure from falling freight rates and increased losses after years of excess capacity and tepid global demand. We continue to witness strong securities lending demand for K-Line, which has seen its share price rally by over 40% from a three-year low in February this year.

Standard Chartered Plc announced third quarter profits that missed analysts estimates and showed falling revenues in all four of its divisions. A sharp fall in revenue and surging loan impairments last year led the Asia-focused lender to announced its first annual loss since 1989. In August the bank announced it would likely miss future profitability targets because of an uncertain regulatory and economic environment. We are seeing an increase in lending demand for the Hong Kong listed line of Standard Chartered Plc.

Europe

Rights issuance and MSCI speculation spur demand for UBI Banca. Costs to borrow shares of Italian lender UBI Banca have increased tenfold over the past several months. Utilization is approaching 80% and fees are nearing the 1000 basis point level. Many Italian banks have been the target of short sellers as they are in dire need to raise capital, causing both directional and risk arbitrage interest in the name. Other Italian banks in borrowers’ crosshairs are Banca Monte dei Paschi Siena, Banca Pop di Milano and Banca Popolare.

Nyrstar was highly sort after ahead of their earnings announcement at the start of the week. On Wednesday the company announced that adjusted Ebitda dropped 43% to EUR 32million and sees a net increase to EUR 766million.